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A double-digit EBIT margin in the fourth quarter and a free cash flow generation of more than EUR 1bn in 2013 are major achievements for Vestas and our dedicated employees.

Yet, the satisfactory completion of the two-year turnaround is at least as important as it creates a solid starting point for the future strategy for Vestas, where Vestas will continue to focus on profitable growth.

Anders Runevad, Group President and CEO

Summary

2013 marked the final year of Vestas’ two-year turnaround. Vestas has delivered on the main focus areas over the turnaround period; annualised fixed capacity costs have been lowered by EUR 484m compared to the fourth quarter of 2011, net investments have been lowered by more than EUR 500m to EUR 239m since 2011 and working capital has been lowered to EUR (596)m – the lowest level ever.

For full year 2013, revenue amounted to EUR 6,084m, EBIT before special items was EUR 211m and the free cash flow amounted to EUR 1,009m. This was all above the latest expectations of minimum EUR 5.5bn, minimum 2 per cent and around EUR 1bn, respectively. The higher-than-expected revenue and EBIT were primarily driven by a smooth execution in terms of installation and transfer of risk combined with favourable weather conditions in December.

For 2014, Vestas expects revenue to amount to minimum EUR 6bn with an EBIT margin before special items of at least 5 per cent and a free cash flow of minimum EUR 300m.

Fourth quarter 2013

As expected, the fourth quarter proved to be the best quarter in 2013 measured in terms of revenue, earnings and free cash flow.

Compared to 2012, revenue declined by 6 per cent to EUR 2,361m.

Despite the lower revenue, operating profit (EBIT) before special items improved by EUR 85m to EUR 240m, equivalent to an EBIT margin of 10.2 per cent. This was driven by lower costs, better margins on the delivered wind turbines and better service margins.

The free cash flow amounted to EUR 816m in the fourth quarter. This marks the best quarterly financial cash flow generation ever and an increase of 96 per cent relative to the year-earlier period. The free cash flow in the fourth quarter was positively affected by a reduction in net working capital, improved earnings and lower investments. As a result of the positive free cash flow, Vestas reduced its net debt by EUR 814m during the fourth quarter of 2013 and ends 2013 with a net cash position of EUR 86m.

Full year 2013

The free cash flow amounted to EUR 816m in the fourth quarter. This marks the best quarterly financial cash flow generation ever and an increase of 96 per cent relative to the year-earlier period. The free cash flow in the fourth quarter was positively affected by a reduction in net working capital, improved earnings and lower investments. As a result of the positive free cash flow, Vestas reduced its net debt by EUR 814m during the fourth quarter of 2013 and ends 2013 with a net cash position of EUR 86m.

The free cash flow amounted to EUR 816m in the fourth quarter. This marks the best quarterly financial cash flow generation ever and an increase of 96 per cent relative to the year-earlier period. The free cash flow in the fourth quarter was positively affected by a reduction in net working capital, improved earnings and lower investments. As a result of the positive free cash flow, Vestas reduced its net debt by EUR 814m during the fourth quarter of 2013 and ends 2013 with a net cash position of EUR 86m.

Order intake

The intake of firm and unconditional orders increased by 60 per cent to 5,964 MW. A significant pick-up in US orders and a growing order intake from new wind turbine markets such as Chile, Jordan and South Africa were the primary drivers of the growth.

Order backlog

Vestas is entering 2014 with an order backlog of EUR 6.8bn or 7,417 MW for wind turbines. In addition to the order backlog for wind turbines Vestas has service contracts with contractual future revenue of EUR 6.7bn.

The service business continued to expand in 2013. Revenue amounted to EUR 954m, an increase of 8 per cent relative to 2012. As predicted, earnings in the service business were much higher than in the wind turbine business. The EBIT margin was 22 and 15 per cent before and after allocation of Group costs, respectively.

Vestas has installed more than 50,000 wind turbines, which is far more than our closest competitor. Combined with our advanced monitoring system, these turbines provide a solid foundation for our service business because it comes natural to have the manufacturer service the turbines. The improved wind turbine output is reflected among other things in a record-low Lost Production Factor, the share of the wind not harvested by the wind turbine, of 1.7 per cent. The positive development creates a solid foundation for extending service contracts.

Social and environmental issues

Through the dedicated effort of its employees and supervised contractors, Vestas has managed to reduce the number of lost time injuries. At the end of 2013, the incidence rate was 2.1 which was significantly lower than in e.g. 2009, when the incidence rate was 8.1 – however, slightly above the target for 2013 of 2.0. The next focus area will be behaviour in order to meet the target of no more than 0.5 incidents of lost time injuries per one million working hours in 2015.

Vestas’ share of renewable energy increased to 56 per cent in 2012 from 52 per cent in 2012, and renewable electricity increased to 100 per cent in 2013 from 89 per cent in 2012. Vestas has defined a goal that all electricity must come from renewable energy sources. This goal was reached in 2013.


 “Successfully completing our turnaround has positioned Vestas to unfold the potential offered by our unique position as market leader. Our strategic focus for the coming years aims to translate this opportunity into profitable growth in a dynamic market.”

Anders Runevad
Group President & CEO

Anders Runevad

Ensuring profitable growth

Since joining Vestas in September, I have had the pleasure of getting to know Vestas, its employees, customers, suppliers and owners. These past months have confirmed to me both that our industry holds a high potential as an answer to the growing demand for clean, reliable electricity, and that Vestas and its employees have what it takes to lead this industry into a new era.

What is also clear, however, is that the market conditions are changing: Growth in energy demands is shifting away from what has historically been amongst the wind industry’s key markets, competition is increasingly fierce and regulatory conditions uncertain in a number of markets.

In order to achieve profitable growth, Vestas needs to adapt to this changing reality.

Successful turnaround

At the end of 2013, we can conclude that we have taken the first steps in doing so by successfully completing our two-year turnaround.

Our annual results demonstrate a Vestas significantly more profitable than two years ago, while our ability to generate a positive cash flow has greatly improved. Consequently, we have reduced our net debt by around EUR 1bn over the past year, ending 2013 with a net cash position of EUR 86m.

We have made considerable improvements across the organisation to deliver on the promises to our shareholders:

First and foremost, we have lowered our fixed capacity costs by almost EUR 500m, among other things, by reducing the number of employees. Secondly, we have reduced the number of factories from 31 to 19 and we have kept our investments at a low level, while bringing five new wind turbine variants to the market.

An order intake of around 6 GW across 37 countries on six continents underlines that by doing so, we delivered what customers want: reliable products that continuously lower the cost of energy.

Another sign of our technological position was the announcement of a joint venture with Mitsubishi Heavy Industries Ltd. (MHI) dedicated to offshore wind power. Combining MHI’s strong, global position and experience within the power industry with Vestas’ wind power know-how, makes a strong partnership. And with the first prototype of the V164-8.0 MW turbine – the world’s most powerful wind turbine – now installed in Denmark, one quarter ahead of the original schedule, the joint venture is off to a good start.

Setting the future direction

Vestas’ transformation over the past two years has increased our focus on our core competencies and made the company leaner, more cost-efficient and flexible.

The direction we now set for Vestas going forward builds on this progress, as this will ensure we continue to lead the wind industry while ultimately delivering profitable results.

Grow profitability in mature and emerging markets As growth in electricity demand is shifting from Europe and North America to new regions like Asia, Latin America, and Africa, many new markets for wind power are developing. Vestas has already gained a first-mover advantage in many of these; in fact, Vestas operates in more countries than any of our competitors, and we will continue to use our global presence and expertise to pursue opportunities in these promising markets.

Capture full potential of the service business

We aim to make the service area an even more important part of our business, and we will build on three key advantages in doing so: our installed base of 60 GW, our position as the only truly global provider of service solutions and our industryleading ability to analyse and predict wind conditions anywhere on the globe.

Combined, this gives us the opportunity to develop new service offerings to further increase the power production from our customers’ wind power plants.

Reduce levelised cost of energy

To ensure maximum output for our customers, we will continue to base our product development on evolution of our tested 2 MW and 3 MW platforms. By reducing the complexity of our wind turbine designs and use more standard components, we will achieve lower cost while maintaining the high levels of quality and power output our customers have come to expect.

We underline our confidence and commitment to this approach by our aim to reduce the cost of energy faster than the market.

Improve operational excellence

Lowering cost and improving efficiency will remain a key priority for Vestas. We will build on the substantial results we have achieved over the past years to improve earnings and the competitiveness of our products.

This will include exploring the possibility of outsourcing the production of non-core technology. It is also our aspiration to translate Vestas’ business volume into the lowest sourcing, transport and manufacturing costs in the wind industry.

A positive outlook

The progress we have made over the past two years, thanks to the dedicated efforts of our employees, means that Vestas today is strong and well-positioned to thrive and prosper in a challenging and maturing industry with rising demands from customers and society.

Executing on our strategy will ensure we make the most of this opportunity:

We will gain the financial strength and stability which we need to be a trusted partner in a competitive marketplace.

We will be able to deliver greatly improved value and return on investment to our customers, bringing us closer to fulfilling our vision of making wind an energy source on a par with oil and gas.

And we will continue to grow profitably to ultimately deliver optimal value creation to our shareholders.


“Our results and financial strength improved quarter-on-quarter during 2013 driven by lower costs, improved working capital and low capex requirements.”

Marika Fredriksson
Executive Vice President & CFO

Marika Fredriksson

Improved financial strength

2013 has shown an encouraging development on key financials for Vestas. During the year, we have transformed a Company with a net debt of EUR 900m to a company that is net debt free. This is a major accomplishment and very much driven by the reduction in working capital.

We have for quite some time focused on improving our working capital management and a lot of functions in Vestas have contributed to the good result in 2013 where we ended at a record-low level. Faster installation time in the field, improved planning of manufacturing and transportation and use of bestpractice across functions in Vestas are some of the levers of this achievement.

Our earnings have also improved during 2013. In the beginning of the year, we had some headwinds, but things improved every quarter, and we ended 2013 with a fourth-quarter EBIT margin of above 10 per cent. This is the best result in three years and a positive effect of our turnaround focus on cost savings.

The improved earnings and the lowered net working capital have also improved our return on invested capital (ROIC) by 7.5 percentage points during 2013 to 7.7 per cent. The level needs to improve further as our ambition is for Vestas to generate a double-digit ROIC both in good and in bad years.

We have also introduced some more conservative targets for our capital structure, among other things, in order to signal even more strength towards our customers. Our updated financial targets are a solvency ratio of above 30 per cent and a net debt/ EBITDA ratio of lower than 1 by the end of every financial year.

Read more in the article "Financial performance" in the annual report 2013.


“During 2013, we launched several new 2 and 3 MW wind turbine variants and accelerated the development of the V164 turbine. At the same time, we further improved quality while keeping investments low.”

Anders Vedel
Executive Vice President & CTO

Anders Vedel

More wind turbines from fewer platforms

While the slow-down of the wind turbine market has curbed requirements for costly new technology, Vestas offers upgraded turbine variants that meet customer demand by basically yielding more for less.

Since 2011, we have almost halved the spend on R&D by prioritising development of proven technology over research. In 2013, we nevertheless brought five new wind turbine variants to the market. Our bestselling V112-3.0 MW turbine was launched in a 3.3 MW variant. Likewise, by adding different rotor sizes, variants such as the V105-3.3 MW, the V117-3.3 MW and the V126-3.3 MW turbines increase annual energy production by up to 20 per cent.

The 2 MW platform was also expanded in 2013, utilising the same recipe of evolution over revolution. By increasing blade length and power output, the new V110-2.0 MW turbine enhances annual power production by 13 per cent compared to the V110-1.8 MW turbine.

In January 2014, the V164-8.0 MW prototype turbine was installed one quarter ahead of the original schedule. The successful development was also acknowledged by Mitsubishi Heavy Industries Ltd. as the V164 will become the backbone of the new joint venture within offshore wind power.

Finally, quality was improved in 2013. The share of wind not harvested by Vestas’ turbines – the Lost Production Factor – declined to 1.7 per cent which emphasises the advantages Vestas has from monitoring more wind turbines and having more comprehensive testing facilities at its disposal than anyone else in the industry.

Read more in the article "Technology and service solutions" in the annual report 2013.


“During 2013, we intensified our efforts to make Vestas more flexible and lowered the cost of wind power through continued costcutting and further optimisation of our global manufacturing footprint.”

Jean-Marc Lechêne
Executive Vice President & COO

Jean March

Creating a leaner and more flexible Vestas

In 2013, we intensified our work to reduce costs and make Vestas more scalable. Since we embarked on our two-year turnaround journey towards improved profitability, the number of manufacturing sites has been reduced from 31 to 19.

In fact, by divesting or outsourcing non-core activities, we have also sharpened our focus on utilising Vestas’ core competencies to full effect. By increasing the cooperation with trusted business partners, Vestas will continue to receive its components at the same high quality level as always. For Vestas, this means getting the best of both worlds: quality components at lower prices and a more flexible business model.

Vestas’ focus on improving capacity utilisation also included a decision to offer production for third parties at the tower factory in the USA. This proved successful: Combined with Vestas’ rising order intake, the world’s largest tower factory is now expected to work at full capacity in 2014.

Saving costs will continue to be a daily focus area for Vestas. In order to further lower the cost of energy for our customers and improve profitability for Vestas, it is our intention to reduce manufacturing costs to an even larger degree.

Vestas has already come a long way. By completing the twoyear turnaround, we have created a lean, scalable and flexible manufacturing footprint which we will use to further improve our profitability and reduce the cost of energy for wind power.

Read more in the article "Manufacturing and sourcing" in the annual report 2013.


“In 2013, order intake increased, driven by new wind turbine markets and the USA. In addition, our service business continued to grow and we improved lead time in construction.”

Juan Araluce,
 Executive Vice President & CSO

Juan Araluce

New wind turbine markets continue to show strong growth

In 2013, order intake recovered. Growth was driven by a revitalised USA and not least new wind turbine markets, which accounted for 17 per cent of Vestas’ order intake measured in MW.

As expected, the extension of the Production Tax Credit made order intake in the USA pick up significantly with Vestas winning firm and unconditional orders of around 1.4 GW with an additional potential of more than 2.5 GW. This is good news, but the well-known “boom-and-bust” cycle of the US market also underlines why it is crucial for Vestas to have a flexible manufacturing footprint.

New markets continued to show strength. During 2013, Vestas received its largest orders ever in countries like South Africa, Jordan, Uruguay and Chile, consolidating Vestas’ strong position in this segment. The European market remains to be flat, but will still be the most important for Vestas.

Another focus area in 2013 was the continued work on excellence in construction of wind power plants, which reduced installation lead time by 7 per cent. Fast installation of wind power plants also reduces the time Vestas has working capital tied up in the transportation and construction phase.

Last but certainly not least, our service business continued its progress. In 2013, service revenue and earnings increased, driven by better performance, high renewal rates of expired service agreements and the fact that all orders for new wind turbines today are accompanied by a service agreement.

Read more in the article "Sales and market development" in the annual report 2013.